Advertising Disclosure
  1. Home
  2. Community
  3. Ask
  4. November CPI Report Is Out- Where Do We Go From Here?

November CPI Report Is Out- Where Do We Go From Here?

sams1985
  |     |   781 posts since 2022

The media and markets are hysterically jumping on this report boldly claiming inflation has ended and no more rate hikes but that sounds far from reality.

The fed said it's "good news" but only one data point. Inflation is still persistently high. There's no way the fed could stop raising interest rates just yet unless they are spineless. Regardless, where do we go from here as far as CD's go?

  Post an answer
6


Answers
ricsue
  |     |   17 posts since 2010
Thoughts? I was contemplating taking early penalty at Lafayette on 2% CD's, I was waiting a bit longer to see some 5% offers, but now I'm debating if I should just take the 4.5, according to the CD EWP calculator, it's still a big gain vs leaving at 2% for the next 3 years of the remaining term. Lesson learned that EWP at Lafayette is 600 days, I will definitely avoid reinvesting there, looking for 180 day which seems to be the industry norm. KS bank is 540 days, the only one offering 4.99 right now. Dilemma!!!
Reply
4
sams1985
  |     |   781 posts since 2022
The Fed is pushing back a bit which is good news-basically saying that that while this data point is good news its a bit of an overreaction and they plan to stay the course with moderate rate hikes. Will CD rates keep rising though is another question, i want to say yes but i dont know how the banks will behave moving forward.
Reply
6
Choice
  |     |   937 posts since 2020
Let me see ricsue if we got this right (or another view): Almost 2 year ewp with current CD which is not liked but looking (is that the word or is it "considering?") a CD with 2 months less than that as a ewp...got it! And, factoring in the cost of the current ewp in connection with a 4.99% new CD will net approximately 2.99 for the first and second year of a 5 year CD and then increasing to 4.99% for balance of the 5 year term. And, finally, we see nothing about redeeming the new CD at a particular point in the future (what was the ewp imposed when the funds were originally moved to Lafayette...sorry I digress). And Lafayette is looking at that potential 600 day FEE, ie no reason for it to renegotiate that CD. We see your dilemma!
Reply
3
ricsue
  |     |   17 posts since 2010
This is the first time I have ever considered taking EWP's to reinvest at higher rate. I just did so with a portfolio of CD's at Advancial CU, and over the 5 year term, I will yield an additional $40k, rather than leave them sit at the 1.8% they were. (not that concerned what the actual yield will be, more so, how much gain I will have over leaving them in these low rate CD's for another 3 years. The question about what was the EWP before investing at Lafayette is pointless, because we were not in a rising rate environment, so short terming CD's was not considered then. My dilemma is the 'present' time situation, and now making myself aware of the significant differences, if you do want/need to get out of a CD, to look for a bank/CU, that has a smaller penalty. At the time I invested at Lafayette, I didn't think about EWP, had I then, I would not have 'maxed out' there, I would have placed the funds elsewhere for the same '2%' rate. $3400 to get out of a 5 year CD with less than 3 years remaining is steep, and takes investing back into 3-5 year to come out above water.
Reply
1
SouthernGirl
  |     |   210 posts since 2022
ricsue,
Just a thought, have you read Lafayette's Truth and Savings disclosure (for certificates) in effect as of the date that you opened the CD in 2020? Do you have it in the Membership Booklet as of 2020? Does it specifically say that the principal balance may be reduced? If not, Lafayette is limited to taking the 600 day EWP "from dividends only". You might be able to withdraw all of your dividends first and pay no EWP. I know the current version of the disclosure online has the verbiage "this may reduce the principal". Lafayette, as of October 11, 2022, has a new separate Fixed Rate Jumbo Addendum, for some reason. What matters is the disclosure and verbiage in effect, when you opened the CD.
Reply
3
CDsuckers
  |     |   70 posts since 2022
Hopefully, the FED will stick with it's projected course of increasing rates. But, it looks like they'll be getting progressively smaller.
For the most of this year, I've been converting maturing CD's into TIPS because the real yields have been steadily rising.
Yesterday, the yields ended the day at 1.69% on a 5 year TIPS (Bloomberg). Today, it sank to 1.46%. 23 basis points in one day!
Today, a 5 year nominal Treasury is yielding 3.94%. That creates a reasonable TIPS breakeven rate of 2.48%.
However, if those 5 year brokered CD's maintain a 5.0% yield the TIPS breakeven rate is a more expensive 3.54%.
That 5% brokered CD is also just above the annualized future inflation of 4.9% (October's 0.41% times 12).
Since that 4.9% is greater than 3.54%, TIPS are still a better deal right now.
What the average inflation will be for the next 5 years is anyone's guess.
At least 2.5% average inflation over the next 5 years is probably a certainty.
3.5% average inflation is possible.
So right now, TIPS are still a better deal than nominal Treasuries.
But 5% CD's are looking more attractive if inflation settles in at around 3.5%.
Since TIPS are based upon the seasonally unadjusted CPI-U, that's the measure of inflation that I track.
Reply
4
w00d00w
  |     |   360 posts since 2012
in hindsight, a good time to buy the 5 year TIPS would have been end of September when breakeven rate briefly fell below 2.2%

https://fred.stlouisfed.org/series/T5YIE
Reply
2
CDsuckers
  |     |   70 posts since 2022
I've always had a TIPS ladder representing an age-related percentage of total retirement assets.
The "real" yields have always been more important to me than the breakeven rate.
When yields went negative in 2010, I just couldn't bring myself to purchase a guaranteed loss against inflation.
However, this shot to hell the rungs on my TIPS ladder.

In 2023, TIPS yields went back over 1% for about 3 months.
So, I gobbled-up what I could from maturing IRA CD's to try to get back on track.
In 2020, they went negative again and stayed that way until June of this year.
Since June I've moved every maturing IRA CD into TIPS at auctions and the secondary market.

I was planning on doing the same with some taxable CD's that just matured right after the October CPI-U announcement.
If TIPS yields can remain over 1%, I'll probably stick to that plan to provide some inflation protection for taxable cash.
In the past, you could at least squeeze-out a 1% real yield just by building a CD ladder.
However, due to a combination of ZIRP, QE and then "unexpected inflation" those days are gone.

Are 5% CD's going to be enough to beat inflation over the next 5 years?
Back in 2016 no one was predicting the 2021 inflationary outbreak.
Not me, the FED, economists or the pundit saw this one coming 5 years ago.
At least with TIPS you've got a guarantee that you'll preserve your purchasing power.
Reply
2
w00d00w
  |     |   360 posts since 2012
demand for business and consumer loans is mostly down (with HELOC and credit card loans exceptions)...that change in demand could be a headwind for continued broadly rising CD rates

https://www.federalreserve.gov/data/sloos/sloos-202210.htm
Reply
3
sams1985
  |     |   781 posts since 2022
True but savings are down across the board and banks will need money moving forward if the fed keeps rates elevated. There;s a lot of competition out there.

I may be the last passenger on the Titanic but i still see CD rates trending up. Just today a credit union released a 5% CD. Hard to imagine there wont be anymore 5% brokered CD's offered esp without any kind of pivot to rate reversals. It's shameful that the funds rate hit 4% and a 5 year CD's are maxing out at 5%.
Reply
3
sams1985
  |     |   781 posts since 2022
Another data point - My capital one 4.3% 5 year non-callable CD continues to crash in price even as of today. If 5% CD's were finished, i would think the secondary market CD's in the 4% range would stabilize a bit. Yesterday's market reaction was purely emotional and a lot of people on here also claim the sky is falling and we're done and it's time to pack it up. Let's see who's right in the coming weeks.
Reply
8
sams1985
  |     |   781 posts since 2022
And lastly, CME Fedwatch tool still has a 100% chance of a rate hike in december. 80% chance of 50 basis points and 20% chance of 75 basis points.
Reply
7
John19
  |     |   395 posts since 2022
Bread Financial went to 4.75% today. I think direct CDs will continue to rise a bit. Remember 2019 when NavyFed offered 3.50% 5 year CDs, and It was after many months of rate cuts and falling CD and treasury rates..Only the morrow will tell.
Reply
3


The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.